Forex Options Strangle System

Thanks for that, but from which page did you get the figures $71 and $60, please?

Those figures are quote prices after I log in to Options Express account

It is very nice to see a meaingful discussion of FX options on this board. I did try start a discussion a couple years ago but there wasn't much interest.

When I first started trading FX options, I was drawn to the leverage avaiable in FX that wasn't avaiable in the equity markets. I tried tradking just spot but it was too time consuming and stressful. Setting an option trade with fixed paramters and just omse price alerts allowed me to sleep at night.

My broker was Saxo and it took me sometime to become accusotmed to the platform. In the early days of using the platform, the spreads were much tighter than they are now for FX options. When the currencies started making large moves especially, the GPY/JPY, SAXO greeatly increaed their FX options spreqds to the point of being untradeable. It was suppoed to be a temporary measure until market conditions stabilized.
The spreeads have become more competiive but nothing like whqt i had before..

My initial trades were covered calls. Nothing fancy, just using supeiorior margin avaialbity to do trades I used to do in equities i.e. buy-writes..Sometimes, I would write deep in the money calls aginst an underlying fx position for extra secure trades (or so I thought)...I would also do odd trades that creaated margin hedge.For example, Saxo offers CAD/USD and CHF/USD as spot pairs...Not traditional pariings ..A couple of times, I had written covred calls on the USD/CAD and the spot started falling precipitously and before long the premium I received for selling the calls was not enough to offset the loss I was suffering in the underlying spot position..So, typically, I would buy more spot to average down my spot fx cost base and then write more calls to catch up..That's ok if the underling stablizies..lol..and you do't run out of magin..another trick was to simply take a correspoiding position in the CAD/USD which effectivly acted a hedge aginst any further downwrd movement in th e USD/CAD..yes, I paid another spread for opening the postiion but it stablized my margin and alllowed me to sell some OTM calls to gradually get back my lossess..Now, I am not suggesting this as a stragegy, it was jsut someting that I saw as method allowed by the Saxo software to do.

I spent quite q bit of time looking for other brokers and like many who have poseted here, there is onl really Saxo and IKON..I tried IKON's Core option platform and it was ok an dyou could cross-marign with the companion platform in the real account..I just didn't ike having two seaprate platforms, though from reading here, it appears you can do it on one now.

I saw some metion of CitiFX being Saxo's US white label partner, I think that is true but I do nothink there platform suppots FX option trading, if i am inocrrect, pleae lte me know.

Also, I am not sure whether Saxo's weekend maring rules apply to naked option writing.

As far as FOSS, I am reading everything from the beginning and find it very helpful. In m view, you cannot beat the power of margin offered in OTC options offered by Saxo and IKON as opposed to the ETO versions...harnessed properly, you can make consisent double digit yearly profits.

I noticed that rolling out after buying back a short option that surpassed its strike price is the trading sragetgy that appears to work over time when the trade goes aaginst you..I noticed the idea of placing an limit order on the underlying at the strike price(s) for the naked options isnt favored as a way of potentially limiting the losses..I presume that doing so makes you a "direction" trader and you run the risk of being "whip-sawed"?

[quote=u..I noticed the idea of placing an limit order on the underlying at the strike price(s) for the naked options isnt favored as a way of potentially limiting the losses..I presume that doing so makes you a "direction" trader and you run the risk of being "whip-sawed"?[/quote]

Could you please give an example?
Is it not same as CC but instead of taking a position in underlying you wait for a while and hope that you will not have to take that position.

yes, that's correct...In essence, when the underlying curency moves enough in either dirction to breach one of your naked positions, you buy the corresponding quanitity of the udnerlying currency to becoming "covered"...

In dong so, you do risk the currency turning back and putting you in a loss position in your new sport position.If however, the underlying remains at or above the strike price of option in question, you will be called out and the option will be exercised..In that case, no rolling out was necessary and you are free to start again..BUT, it does convert the strategy from a directionless trade..I have had instances where I wrote naked calls on the EUR/USD and for months, just simply collected the premium without any worry..Then, the EURO surged and my limit order on the spot side (made at the strike price of the naked calls) was hit and the postion became a covered call..It is important to remember that there is no way of knowing when in the cycle of waiting for naked options to expire that you may be faced with a strong move that brings you to making a decision to take your loss on the naked position and rool out...Personally, waiting too long to take your loss can compound the problem and increase the time it will take to revoer your loss through the rolling out procedre..

Getting back to my example, after I went long on the EURO, it backed off and at the time of expiry of the calls, I was no longer in the money..So, I could either sell the spot and take the loss or write calls again to bring me out of the position next month (I usually write in the money calls at that time to capture some pips that I would otherwise would have by writing another set of calls.)..Does thiw always work? No, sometimes I had keep writing calls until I caught up (not a good idea)..just my two cents worth.

When you talk of "rolling out" is this the same as "rollover"? When you rollover are you just hoping for the option to go OTM so that you could make a profit/smaller loss?

Do you find saxo better than ikon? There are more pairs on saxo so there is maybe more opportunity there? (more deep otm options?)

What happens if a short (selling) OTM option goes ITM on expiration date? Does it turn into a spot position? (happened to me on demo)

How do you trade around news/statistic releases? It can move the market rather much?

Do you know any broker that have barrier options (or that's similar to it)?

What would you consider a reasonable bid/ask spread in, as an example, this option:

[ 1 EUR/USD 60 DTE ATM call @ 100 premium ]?

I'm just a newbie here, but if you are going to trade options, FOREX or equity, there is no better reference than Options as a Strategic Investment by L. G. McMillan. The current 4th edition is totally comprehensive and explains the use of options for a practitioner's point of view. The book also explains the common trades and the combinations; straddle, strangle, spreads (all kinds), butterfly, condor, etc. This book is not light reading, but it is a reference I go back to again and again. Once you understand the fundamentals, you will know what type of trade you want to put on depending on whether you're bullish or bearish on the currency, or expect increasing or decreasing volatility. I recommend it.

Note that I am in no way related to Mr. McMillan and do not have any interest for personal gain in the book. I am just a student of the markets and a very satisfied customer.

This week I have received notification from Alpari US that their options trading platform is now live. It looks very good, and there are lots of pairs, strikes to choose from, some spreads are good, some not so good, it depends on the pair. However their margin requirements are nothing short of ridiculous (10 times that of Ikon) and make the whole thing cost ineffective. I have emailed them twice asking about how they calculate their margin & why the margin calculator (which is integral to the platform) shows a much more reasonable margin than when you actually trade. Also, they double up on the margin instead of offsetting for a sold strangle - which is quite frankly just wrong. The margin calculator does however show the margins offsetting. Surprise, surprise, my emails have been ignored. It's a shame their customer service sucks, because it doesn't look too bad apart from the margin.

Also this week Ikon have notified that all existing customers on their Prime Options platform will be moving to Prodigy as of market open on Monday. Prodigy is the new name for what they were calling Quantum. It looks practically identical to the old systems but offers a more configurable screen layout & includes spot trading in the same platform (where previously you had to use Platinum). The only "real" difference I can see is there are now 2 extra pairs available, GBPCHF & AUDJPY - although on demo I tried to sell 2,000,000 AUDJPY and it told me that exceeded my limit for that currency, it seems 1,000,000 is the limit for that currency pair.

That's good to know about the platform change. I tried to open a Prodigy demo just now, but it's not generating an email response. I don't see any platform info on Quantum or Platinum.

Alpari's option margins are based on new (US) National Futures Association rules. Ikons are not.

skoda2008 - the margins on the Alpari platform must conform to NFA requirements as the platform is for Alpari-US. The NFA specifies that option margin and spot margin must be added together for each position and not margined as a portfolio as the calculator displays. Thus synthetic calls and puts, short strangles and straddles, etc cannot be margined to represent risk as you pointed out.

That being the case I feel sorry for those based in the US. It's surprising Alpari don't offer it through the UK division - maybe they will in future? Still no response from the customer service department - very poor.

Seems like Ikon doesn't offer AUD/JPY on live accounts and they don't know when they will be either.

Too bad, there was alot of deep otm calls and puts on that pair. Although this was on demo, maybe it wasn't "real"?

what kind of straddle using in this thread on live trading?

Not sure if i should answer this since i don't trade options (yet). But the main strategy in this thread is short strangle with deep otm calls/puts.

Hi Scattergood ,

Thanx for an awesome thread , just shows there are so many ways to skin this cat. I have a few questions and hope you will take the time to answer :
1) I am currently running a demo Strangle as follows :
Sold EURUSD call 350,000 27Feb Strike 1.4200 , expires 6th April for 0.0037 pips - Current price was about 1.3750
Sold EURUSD put 350,000 27 Feb Strike 1.3600 , expires 6th April for 0.0122 pips - Current price was about 1.3750

Total Pips = 0.0159 or $ 5,565 . Nice.

The price is currently close to 1.4200 and I am thinking about rolling the call to a higher prices (i am currently up by $1250 if I had to buy back both the call and put ) , do you actually have to roll before the 1.4200 (making it in the money) or is it fine to leave it a bit above 1.4200 ? Do I pay a huge increase in premium for ITM ?

2) EURUSD has been in a strong uptrend the last few days , is it viable to keep on selling far out of the money PUTS to increase balance as the price goes up (Same for selling calls when price goes down ? ) . This way you can drastically increase your potential profit when price does not behave as you would like ?


Thanx

Hey, great thread going here. Question for anyone with access to Ikon demo/live platform, what's the margin for selling an at the money short straddle for an April or May expiration for the EUR/USD (i.e. short 1.40 call, short 1.40 put).

It was mentioned that Ikon margins are much cheaper so I'd like to get an idea. My demo account isn't working, can't get any live quotes.

On the Alpari demo the margin for EUR/USD at the money short straddle is around $9,300 for the April 17 expiry; on Thinkorswim the margin for the May 6th expiry for the Euro Fx Futures (6E) is around the same ($9.3k, plus or minus. obviously these are variable as spot moves).


Thanks

For Eur/Usd April 18th 2011 (for amount 100,000)
1.40 Short Call is priced about $1,710
1.40 Short Put is priced about $2,030 .........for a margin of about $2800

for May 17th 2011
1.40 Short Call is priced about $2,300
1.40 Short Put is priced about $2,760..........for a margin of about $2800

Thanks for the reply cspip, those margins are definitely smaller. Do you know if only persons not in the United States get cheaper margins (because of NFA regulations?) I am in the US, so I'm thinking they would make my margins higher.

Agent6488, have you received an email response about Ikon Prime/Prodigy yet? I have not. Would like to get the demo going.